Financial guru Martin Lewis has delivered his verdict on whether Premium Bonds represent a savvy savings choice for Britons, highlighting a key group of winners.
The Premium Bonds Verdict: A Savings Lottery
During an appearance on ITV's This Morning, Lewis addressed a viewer's question about the popular bonds issued by National Savings and Investments (NS&I). He explained that the bonds, which can be bought from just £25, offer the chance to win tax-free prizes instead of providing a guaranteed interest rate.
Lewis, founder of MoneySavingExpert.com, described the product succinctly, stating Premium Bonds are essentially "a savings account where the interest is dictated by a lottery". His analysis concluded that they primarily benefit wealthier savers who can afford to invest larger sums. The structure, where a smaller number of people win high-value prizes, means the vast majority receive smaller returns on their stake in the prize pool.
NS&I's Role for Large Savers Seeking Security
The money expert also clarified the unique security offered by NS&I, which is backed by the Treasury. For households with savings exceeding £85,000 – the protection limit of the Financial Services Compensation Scheme (FSCS) – NS&I accounts present a crucial option. The risk of a provider collapsing is removed, as the state-owned savings provider cannot go bust.
Lewis provided a breakdown of current NS&I savings account rates for those seeking guaranteed interest, noting recent increases:
- One-year bond: 4.2% (up from 4.04%)
- Two-year bond: 4.1% (up from 3.85%)
- Three-year bond: 4.16% (up from 3.88%)
- Five-year bond: 4.15% (up from 3.84%)
He compared these to competitors, such as Monument Bank's leading 4.47% for a one-year bond and Skipton Building Society's big-name rates for longer terms.
Who Should Consider Premium Bonds?
Martin Lewis offered clear guidance on the ideal candidate for Premium Bonds. He stated: "The maximum is £50,000. So as a general rule of thumb, if you are a higher or top-rate taxpayer, you have enough savings that you pay interest on it, and you're looking at putting a large amount in, they can be a pretty good bet."
His analysis underscores that while the thrill of a potential million-pound win drives their popularity, Premium Bonds are a financially strategic tool mainly for a specific demographic: those with significant savings who have already utilised their annual Personal Savings Allowance and prioritise absolute security alongside the chance of a tax-free return.
